WEF report’s thumbs down for India on inclusive growth, provides no roadmap for solutions

What India’s policy makers need is guidance and information on how more successful countries have managed to do so.

India comes off badly in most of the parameters identified by the WEF to assess countries’ economies, except corruption (within low-income countries, measured per capita) and on financial intermediation.

India does badly on providing employment to its labour force; on providing entrepreneurship; on providing a sound health infrastructure. These are facts. What India’s policy makers need is guidance on how to prioritise these and information on how more successful countries have managed to do so.

The report is based on the unexceptionable assumption that there is no hostility between economic growth and social justice. To measure how economies are doing on the latter, it has identified seven pillars—education, employment, asset building, financial intermediation, corruption, basic services and fiscal transfers. On each of these, countries are measured on their performance within their cohort. India, not surprisingly, comes off badly in most of them except corruption (within low-income countries, measured per capita) and on financial intermediation.

Does this leave one any wiser about the route to take to pull an economy towards better levels of performance? Contrast this with the annual Human Development Report of the UNDP. The HDI, for instance, makes a case that GDP growth is often better understood when paired with achievements in human indicators. It concludes that growth will not take off and even if it does, will not be sustained unless those specific indicators improve. It includes but also excludes many. Ergo, it offers options for policy-makers to concentrate on as policy variables. The WEF report offers no such trade-off for governments of the 112 countries that feature in the list.

For instance, the ranking for Germany shows that its level of fiscal transfers including the level of social protection (among advanced economies) is weak. It has also been a laggard among them in providing home ownership. Does this make the German model of development brittle? If India were to emulate it would it have to jettison its plan of `Housing for All’ and, instead, pitch for spending more on entrepreneurship! These questions matter enormously. Sweden for instance (within advanced economies) shows a relatively worse score on financial inclusion than say India does after accounting for income differences. How would these differences pan out for the Indian growth story or others making the transition?

In this landscape, it is more comforting to turn to reports which offer a narrative. The OECD’s Going for Growth report (February 2015) is one of those. On India, it concludes that the income gap with the developed countries has reduced but “remains large…mainly stems from a productivity shortfall’. It adds that for this to happen the policy makers need to push financial reforms including a more efficient allocation of capital; it sticks its neck out to say that reduction in regulatory overhang on companies and entrepreneurship must include modernization of labour laws.

The WEF report avoids leaning to any side in the debate despite serving a rich set of data. It ends up as a middle of the road piece with nothing much to draw attention to.